1990: "What If" Scenarios

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December 04, 1990

As 1990 comes to a close, the cruise industry is facing a series of "what if" scenarios. Although many of these are not new, what makes them different now are the circumstances that have changed drastically from previous years.

While the cruise lines successfully weathered a recession in 1982/83, it was without the record number of new berths which are now being introduced, and it was without the threat of war and terrorism.

In today's scenario, the market turned soft already in 1989 long before the recession took hold. With record new berths coming on line in 1990 and 1991, the major cruise lines have so far been able to maintain load factors by boosting sales and marketing efforts and through deep discounting. A long-lasting recession, however, would have an increasingly negative impact on earnings and would also be expected to absorb the weaker cruise lines. In the end, the industry would be further consolidated to fewer players.

The cruise industry's concentration in a few key sailing regions also makes it vulnerable to unexpected negative events, such as acts of war or terrorism.

If the situation in the Mideast is not soon resolved and if a war should break out, it can be expected that the Mediterranean market will dry up and that also the Northern European cruise market will be negatively affected as the American travel market in case of war and terrorism will not necessarily differentiate between Southern and Northern Europe.

Following the collapse of the Mediterranean market in 1985/86, it was easier then to deploy ships in other markets because there were fewer ships. Today, with a larger cruise fleet, it becomes increasingly difficult to re-deploy ships.

Moreover, analysts have also pointed out that South Florida's domination of the cruise market also makes it vulnerable to unexpected negative events that could occur in that region.

Crisis Management

Recent events have shown that the cruise lines operating in the North American market are equipped to handle bad weather, groundings and fire incidents without loss of life. However, with the growing fleet, the odds are increasing that a fatal incident will some day occur. If so, are the cruise lines prepared to deal with the survivors, grieving relatives, government agencies, and most of all, the mass media?

Already, ships' officers and crew have with few exceptions proved that they are able to safeguard the passengers' well-being. Shoreside, cruise lines have proved that they are able to react on short notice and re-route thousands of passengers when Eastern Air Lines suddenly was forced to suspend service because of the strike and when Hurricane Hugo struck. Luckily neither situation proved life threatening. The unfortunate Scandinavian Star disaster, however, put a much different pressure on those involved.

Political

From Washington, the cruise lines are facing what seems like an increasing battery of legislative proposals ranging from safety issues to imposing various restrictions including subjecting foreign-flag ships operating out of U.S. ports to U.S. labor laws.

In the Caribbean, the cruise lines can look back on a year of increasing criticism from hoteliers alleging that the cruise lines represent unfair competition, and concern by several island governments looking upon the expected revenue returns from cruise passenger spending.

Thus, the cruise industry has nearly completed the first year of a new decade, continuing its strong development and exemplary safety record, but also facing a whole new set of environmental circumstances that could affect its further growth prospects.

Future

Looking back, the cruise industry sailed relatively smoothly through the last recession and the Mediterranean market eventually rebounded from the Achille Lauro hijacking.

Nor did the 1980 sinking of the Prinsendam due to a fire seem to hurt that cruise line's image or deter the cruise market.

While the industry's historical track record is exemplary, in the past the incidents mostly occurred one at a time. Now the cruise lines are suddenly facing a combination of factors and possible events that could impact the industry all at once.